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Changes in Massachusetts tax requirements for remote workforces

On Behalf of | Aug 13, 2021 | Internal Revenue Service


There have been many changes in how people and businesses operate because of the pandemic. One of the biggest changes to the status quo was seen in the Massachusetts state of emergency declaration on March 10th, 2021. As a result, there was the passing of temporary pandemic regulations. Some of the rules addressed were around withholding tax.

The expiry of the state of emergency on June 15th and these short-term tax rules on September 15th, 2021, means commuting non-residents, residents, and employers will feel the shift in withdrawal of taxes by the state.  

Massachusetts temporary withholding tax regulations

In March, the Massachusetts Department of Revenue structured regulations governing income tax withholding vis-à-vis teleworking non-residents who were commuting to Massachusetts before the pandemic.

The interim regulations refer to these workers as non-residents receiving compensation for services done in Massachusetts before the declaration of the state of emergency. These employees then went on to work outside the state because of pandemic-linked circumstances.

Incomes of these employees were to be in part dependent on the personal income tax pursuant to M.G.L. c. 62 Section 5A plus personal income tax withholding in accordance to M.G.L. c. 62B Section 2.

Employers and the expiry of the temporary withholding tax regulations

The state of emergency in Massachusetts expired in June, and the non-resident tax withholding laws soon after. People and companies using remote work models in Massachusetts and other states will undoubtedly feel these changes.

Massachusetts employers have to consider the numerous local and state requirements governing the teleworking of employees residing in separate states. For instance, it is a requirement that employers withhold income and payroll taxes in the state of residency of the remote-working employee. The income tax outcomes from working with non-resident employees will be a major review point for many employers.

What the state requires of your business

The allocation of business income and hence income taxes by the state is partially based on the portion of company workers operating within said state. The varying state labor laws, such as family leave, minimum wage, and employee compensation insurance regulations, apply to employees who live and work in different states. If the business has resident employees, the state may require the enterprise to acquire registration from the department of state.

As the nature of work continues to evolve, it is critical for businesses to understand the laws pertaining to state taxation and remote workforces. A qualified attorney may help implement a plan that maintains compliance with the various local and state tax laws governing the remote workforce.



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